Weekly Focus: ECB hesitates

• Rising money market rates and a stronger euro are probably not enough to prompt a rate cut or other easing measures at this week’s ECB meeting, although we cannot rule this out.

• Fed Chair Janet Yellen is scheduled to appear before Congress and is expected to signal a lengthy period between the end of the Fed’s tapering and interest rates being hiked in the US.

• Inflation numbers out of China are likely to show a significant drop. While not sufficient to prompt further easing, it means this option will remain in play should the economy continue to weaken.

• Norges Bank may signal that a rate hike could come sooner than previously expected but we think this is unlikely.

• Gently falling unemployment and lower long rates in southern Europe will help lift the pressure on the ECB to act. However, it is a close call – we still see a 50% chance of a rate cut in June.

• Inflation is on the rise, but is still far below the ECB’s target.

• The US economy was weak in Q1, but looks in much better shape in Q2.

• In contrast, Japan’s economy appears to be slowing and we expect monetary policy to be eased further in June.

• Both the Swedish and Norwegian economies are showing signs of improvement, though not enough to change our expectation of a rate cut in Sweden.